2024 (3) TMI 202 - AT - Income Tax

Capital gain u/s 45 - capital gain on surrender of leasehold right - Transfer u/s 2(47) or not? - transactions involved between the assessee and Government of Gujarat, wherein the assessee surrendered leasehold rights of the lands voluntarily in favour of the Government and the assessee has not received any compensation from the Government in lieu thereof - as argued mere fact that the assessee has declared the underlying sum as income under the capital gains cannot be a ground to treat the underlying sum as capital gains when, as a matter of fact, such sum is a 'capital receipt' - Another transaction is the assessee entered into a MOU with M/s. CGPL, however not transferred the lands to M/s. CGPL but received a sum from M/s. CGPL HELD THAT - The claim of the assessee that its surrender of lease hold rights to Government of Gujarat is independent of its receipt of money from M/s. CGPL is negated by the copy of proposal for lease rights surrender of Balaji Salt Works and copy of MoU submission in paper book dated 23-01-2024. A conjoint reading of the documents suggests that the act of surrender of lease hold land by the assessees and M/s.CGPL application to Government of Gujarat was a planned action. Further MoU speaks of receipt of 80% of total consideration to both Radhaswamy Salt Works/Balaji Salt Works upon their making an application of surrender to Government of Gujarat. The act of these assessees in not disclosing the actual intent and purpose of surrender of lease deed to Government authority and withholding material information regarding their proposal/MOU with CGPL does not make their act of surrender voluntary and thus the lower authorities is correct in charging Capital Gains on the above transaction, which does not require any interference and assessee appeal is liable to be rejected. No doubt, the above surrender of leasehold rights amounts to transfer as per Section 2(47) of the Act, as it amounts to extinguishment of the rights of the assessees, which is a capital asset as per Section 2(14) of the Act. Though the consideration is received from M/s. CGPL, a third party, not from Government of Gujarat on account of surrender of leasehold rights, the same is assessable to tax as capital gains, since Section 45(1) of the Act does not stipulate as to the person from whom consideration is to be received. Further perusal of the MOU entered between the parties, it is a clear cut case that the assessees were compensated by a sum of Rs. 8.55 lakhs per acres of lands surrendered to Government of Gujarat and a week thereafter the above compensation payment is payable to the assessees by M/s. CGPL. On an identical transaction where compensation received from third party was held to be a transfer within the meaning of Section 2(47) r.w.s. 45(1) of the Act, by Hon ble Calcutta High Court in the case of A Gasper Vs. CIT 1978 (3) TMI 4 - CALCUTTA HIGH COURT which was approved by Hon ble Supreme Court reported in 1991 (8) TMI 7 - SUPREME COURT . Thus we do not find any legal force in the submissions made by the assessee. Decided against revenue. Charging of interest u/s. 234B - appellant is entitled to adjustment of seized cash/FDRs against the self-assessment tax liability from the said date i.e. 15.09.2010 on which the period of 120 days is over in terms of section 132B of the I.T. Act - HELD THAT - Coming to the main section 132B(1) of the Act, which prescribes that the assets seized u/s. 132 can be adjusted against any existing liability as per IT, WT or the amount of liability determined on the completion of regular assessment or reassessment including any penalty levied or interest payable in connection with such assessment or reassessment. As per this sub-section, the Ld AO ought to have adjusted against the tax liability while framing the regular assessment as against the FDRs seized from M/s. Balaji Salt Works and M/s. Radhaswamy Salt Works respectively. In that event also, the assessee is entitled for refund of surplus FDRs seized by the Department as per section 132B 3 of the Act and therefore there is no question of levy of interest under section 234 B and C of the Act. Thus AO miserably failed to adhere to the provisions of section 132B 1 of the Act and the Ld CIT A is not justified in confirming the interest charged u/s. 234B of the Act for the period up to 15-09- 2010. Therefore we direct the Ld AO to rework the computation in accordance with the provisions of law after providing proper opportunity of hearing to the assessees.

Summary

Issues Involved:
1. Legality of the search and seizure operation under Section 132.
2. Taxability of the amount received from M/s. CGPL under the head "capital gain."
3. Charging of interest under Section 234B.
4. Release of seized cash/FDRs.

Summary:

1. Legality of the Search and Seizure Operation:
The assessees challenged the legality of the search and seizure operation under Section 132, claiming that no warrant of authorization was furnished to them, making the subsequent assessment proceedings null and void. However, this ground was not pressed by the assessees during the appeal, and hence, it was dismissed.

2. Taxability of the Amount Received from M/s. CGPL:
The assessees argued that the amount received from M/s. CGPL for surrendering leasehold rights was a 'capital receipt' and not taxable under 'capital gains.' They contended that the transactions between them and the Government of Gujarat, and between them and M/s. CGPL, were independent. The Tribunal, however, upheld the CIT(A)'s decision, stating that the leasehold rights are a capital asset as per Section 2(14) of the Act, and the surrender of such rights amounts to a 'transfer' under Section 2(47). The consideration received from M/s. CGPL is assessable to tax as capital gains since Section 45(1) does not specify from whom the consideration should be received. The Tribunal dismissed this ground, affirming that the assessees rightly disclosed the amount as capital gains.

3. Charging of Interest under Section 234B:
The assessees contended that the interest charged under Section 234B was unjustified as the Income Tax Department had seized their disclosed FDRs, preventing them from paying the advance tax. The Tribunal noted that the AO failed to adjust the seized FDRs against the tax liability as per Section 132B(1) and retained the FDRs beyond the prescribed period. The Tribunal directed the AO to rework the computation in accordance with the law, thereby allowing the assessees' ground on this issue.

4. Release of Seized Cash/FDRs:
The assessees argued for the release of seized cash/FDRs, which the department retained even after the assessment proceedings were concluded. The Tribunal referred to a similar case and concluded that FDRs are not treated as 'money' but as 'other valuable articles or things' under Section 132(1)(iii). Hence, the assessees are not entitled to interest under Section 132B(4). The Tribunal dismissed the assessees' ground and allowed the revenue's ground on this issue.

Conclusion:
The appeals filed by the assessees and the revenue were partly allowed. The Tribunal upheld the taxability of the amount received from M/s. CGPL as capital gains, directed the AO to rework the interest computation under Section 234B, and dismissed the assessees' request for interest on seized FDRs.